Will Gatten, SportsCrew.com Senior Analyst interview
Nigel Payne, CEO of Sportingbet PLC (LSE: SBT)

By: Will Gatten, SportsCrew.com Senior Analyst
Posted on March 29, 2005
© 2005 All rights reserved

PREFACE

Just recently, we witnessed the abrupt termination of the Legislature's dalliance with Internet poker regulation in the state of North Dakota . The proposed bill was looking to make North Dakota the first state to license online poker rooms and it would have allowed internet poker sites to become licensed in the US for the first time; the fact alone that there were various representatives of online poker rooms out there talking to US Senators, speaks volumes of what the internet poker industry has become.

In an effort to keep you on the edge of the latest events and to provide you with the best of insights, SportsCrew.com has approached an icon of the e-gaming industry and we have asked him about his personal involvement in the North Dakota initiative. A man preceded by his reputation and multitude of accomplishments, Nigel Payne -Chief Executive Officer of Sportingbet PLC- is a down-to-earth man that shares the same passion you feel for a good online gambling site. This interview conducted by Will Gatten, will tell you what happened in North Dakota , from the mouth of a man that was there...

INTERVIEW

First and foremost, I would like to thank you Mr. Payne, personally and in name of our readers, for taking time of your busy schedule to share your knowledge and insight with us. We understand you are constantly jumping on and off planes and it's precisely regarding one of your last business affairs –dare we say one that is historical too- that we would like to approach you.

Will Gatten from SportsCrew.com: As a quick introduction and just to provide insight to our readers; who is Nigel Payne? Where are you originally from and how does a man with your educational background find such a thriving passion for the online gaming industry?
Nigel Payne, CEO of Sportingbet PLC: Well I'm 44 years old (45 in late March) and I live just north of London in the UK . I'm married with two great kids, a six year old blond haired blue eyed princess and a three year old cheeky thug. In many ways if you will excuse the cliché, I do what I do so that they will not have to. My hobbies are Motor Racing, Bridge, most sports and seeing as much of the world as I can. Of the 240 countries in the world today I've been so far to 161…so I might just get to them all one day.

I was educated at Bristol University in England and then qualified as an Accountant before entering business. For most of my career I have been working in marketing related industries. And this is one of the key points of the online gambling industry: this industry at its core is NOT a bookmaking business. It is a consumer marketing industry in the “business to consumer” field. Sure managing the lines is important, but over a season if you do it properly you will always win within a range. What is important in this business in my opinion is brand, brand values like trust and innovation, scale, great marketing schemes and a diversified product base.


Will Gatten: We understand that you're definitely a man of vision… what is your most ambitious project for the multi-million dollar conglomerate of e-gaming companies that you manage?
Nigel Payne: Well historically it was to make the Sportingbet Group big. And I mean big. We are nowhere near that level yet. Whilst I have done many things wrong in this business, the one thing we got right was the fact that this industry will see (already is) the emergence of a small number of big brands who will dominate the space. Once you get to that point – and www.sportsbook.com and www.paradisepoker.com are certainly there already then you can create a very scaleable infrastructure where you can leverage extra profit from incremental customers of only a very small increase in the cost base. And as the brands get even more recognition then you grow organically faster too. This is why you see our profits rising from $20m in 2003 to $40m in 2004 to an estimated $108m in 2005. The bigger you are the more you should make. This still is my most important project as we are still but half the size I expect the Group to be in a few years time.


WG: Mr. Payne, the appetite for online gambling stocks is at an all time high. We like to think that part of this appetite is driven by shares trading at record levels for companies like Sportingbet PLC. It is also apparent that many companies, including Cassava Enterprises (parent company of 888.com) and Party Poker are getting closer and closer to a London IPO. What measures are you implementing to remain in control of the prominent position you enjoy of? What changes can players expect from the SBT group, that they might find appealing to further or to start a business relationship with you?
NP: I think it is great news that companies like Party Gaming and Cassava are looking to list. They are both such great businesses. There are others too like Neteller. I have argued for years that the LSE just does not know how big this industry truly is – and with three giants potentially on the market this will be good for everyone. It also helps the regulatory debate enormously in the US . Sportingbet today is a FTSE 200 equivalent company in terms of its market capitalization, Cassava may go close to that too. Party will be a FTSE 100 company. It is a phenomenal endorsement to the industry that we have created a situation where the UK government and the LSE fully endorse this. As the first one there, we take a lot of pride in having led this.

In terms of measures, to be honest we are all very different today, and I do not think any specific measures are needed – at the moment. Party and Cassava effectively have vertical integration strategies wherein they are trying to dominate their field of expertise: poker for Party and computer based gaming for Cassava. And they are both damn good at what they do. Sportingbet has a horizontal strategy wherein we are trying to offer the consumer all online products on our sites, available from one customer account. From live sports through to computer generated lotteries, from real horse racing to backgammon, from poker to Scandinavian ice hockey. What will be interesting will be to see if either Cassava or Party change strategies once listed.


WG: Mr. Payne, we have been following the quarterly reports on Sportingbet PLC in the London Stock Exchange for the past year, your company seems to be experiencing one of the most prosperous times in the market. What, in your opinion, is the reason for this explosively ascending trend of your shares in the stock market? Has the latest explosion of online poker contributed to this?
NP: Poker has for certain. There is no question. But what I think has happened – triggered to be frank by Sportingbet's acquisition of Paradise poker, is that the market now can truly see the strong organic growth and cash yield of this business model. There are not too many truly fast growing, low capital investment industries around today that are organic in nature. This is one.


WG: Thanks again, Mr. Payne. Now, please let us ask about your historical intervention in North Dakota . You recently were one of the most prominent figures involved in a historic initiative that presented a bill before the U.S. Senators in that state? What did this bill encompass?
NP: Well if the sponsor has his way it would allow a business (if approved) to locate in North Dakota and run the global poker business from there.


WG: Mr. Payne, if the bill proposed to make North Dakota the first state to license online poker rooms and it would have allowed internet poker sites to become licensed in the US for the first time, why do you think such a revolutionary initiative was not furthered?
NP: Well first I do not think it is 100% dead just yet – but the odds are stacked against it. I think this very important question can be answered by repeating to you one of the debates that took place. Basically the industry argued that it wanted regulation, that regulation could control children gambling, could minimize excessive gambling etc. Moreover the industry argued that it could not in reality be stopped and that the ONLY way to control these things was through regulation. Countless people testified against the Bill with one message “Gambling is evil”. Yes, they were in the main from the Church and from Family Groups but their views were very strongly felt and we need to respect that. During the debate one of the Senators asked the Church this. “Sir, I agree with you. I do not like gambling. But let me ask you, Mr. Payne here is arguing, quite convincingly, that the reasons why I do not like gambling can be properly managed with today's technology. How, if we do not regulate this Bill, can you do it?” The Church answered “We do not know”.

This is the point. In the main, this is no longer about the arguments. Over the past year we have managed to help people understand that the concerns held are definitely better managed under a regulated environment. What it is about now is politics. Who will be brave enough to stand up and say this to the American people? And in North Dakota , it seems they are not yet ready. And I suspect this is still true of the USA as a whole. Though, if you go to Vegas and see people queuing to get a slot just to walk down the strip (when I was there last week) you do wonder!


WG: Mr. Payne, did you ever dream of the day when you were going to be standing before U.S. Senators promoting the legalization of online gambling in America ?
NP: I think so long as one is courteous and professional about these things then one should be prepared to discuss the issues. It is important o respect everyone's views and be prepared to argue on merit rather than politics and emotion. Hopefully, this is what we do and why we are increasingly getting audiences. Let us not forget that what we do is not only expressly legal in my own country but I think every online gambling regulated jurisdiction in the world today now allows its licensees to take US bets.


WG: Despite the apparent kill of this bill, Mr. Payne… this was a historical effort. What is the next step?
NP: We need, in my opinion, to continue the process of educating and discussing the issues. Understanding that there are very real concerns on the part of the “ante” lobby and trying to find a middle ground. I truly believe that eventually, regulating this industry will happen.

Thank you very much for your invaluable time and insight, Mr. Payne. This industry is definitely better because of men like you. We appreciate your forthcoming attitude and we like to thank you in name of our readers as well.